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Joshua Heller
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Full time investor. I would describe my investing style as predominately value. I am not willing to box myself in as different investment climates can offer favorable risk-adjusted returns (liquidations, m&a, arbitrage). In my past life, I worked for a large institutional bank in portfolio... More
  • A Random Walk Down SeekingAlpha 0 comments
    May 7, 2014 3:20 PM | about stocks: YHOO, AIBYY, DIN, BABA

    A Random Walk Down Wall Street, by Burton G Malkiel has famously argued that the current price of a stock incorporates all known news and information. In my view, Malkiel's thesis is generally true but specific instances can be found where a stock is mispriced.

    As a longtime reader and commenter on SeekingAlpha (first comment September 2010), I wanted to take the next step and contribute by discussing how I find actionable investment ideas.

    At the start of the day, I do not have any specific plans of which stocks I will research that day. Instead, I believe in doing A Random Walk Down SeekingAlpha (pardon the pun).

    On Monday (5/5/2014), I find 3 actionable ideas described below.

    I first look at the daily email, Wall Street Breakfast: Must-Know News. There are mostly macro headlines, interesting but nothing that is actionable for me.

    Next, I see PRO ideas listed and find a short idea on the terminated ADR of Allied Irish Banks (OTCQB:AIBYY). The author, Night Heron, does a great job in linking all of the relevant company news releases making it easy to do my own due diligence (always required). The short idea is easy to understand and gives reasons why the opportunity is available and why shares are mispriced.

    There has also been good discussion in the comments section, saying the short is a bad idea, however no written documentation (so far) has supported this view.

    As a side note, I prescribe to the idea (I'm sure this idea has also been communicated by others but the first time it stuck to me were comments by Buffett and Munger) that an investment idea should be so simple that you can understand whether a stock is a buy (or in this case a short) in the first few minutes.

    The next article on the PRO ideas is an article on a restaurant stock. I respect the article and makes sense but it does not fit my investing style as I think there are too many unknowns in turning around the business. Discussion and comparisons of this restaurant stock lead me to look at another idea, DineEquity (NYSE:DIN). While there are not any recent articles (the article from March 2013 is negative) there is a recent stock talk. I had previously been long DIN, but sold and DIN had not been on my radar for some time. What especially intrigued me is that a major catalyst is close, the refinance of their 9% debt later this year. This debt was issued in 2010 when interest rates were higher and credit lines were tight. With the current interest rate of 9%, I believe a refinance to a rate of 4.5% or less is definitely possible. You can find this stock talk here.

    At this point, I had found 2 actionable ideas (great on any day) but half of the day was still available. At this point, I check my news feed and run across a headline about Yahoo! (NASDAQ:YHOO).

    YHOO has been on everyone's radar for some time because of Alibaba (ABABA), but I have just been patiently been waiting for a better price. The story here is easy to understand, net cash of 4B+ (some convertible debt issued late 2013), 35% stake in Yahoo! Japan (10-11B pretax at current trading price) and the 24% stake in Alibaba. The big unknown is how much will Alibaba IPO for as well as a potential tax bill. The bear view is that taxes kill any upside here but my view is that a tax efficient entity (potentially in another tax jurisdiction overseas) may offer to buy YHOO because of the potential tax advantages. While I missed the dip in YHOO shares this morning, I had not noticed the selloff from 40 to 36ish.

    Disclosure: I am long YHOO, DIN.

    Additional disclosure: I am short AIBYY

    Stocks: YHOO, AIBYY, DIN, BABA
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